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GST will complicate tax for online marketplaces, hurt platforms by removing safe harbor


Provision in the GST (Goods and Services Tax) Bill is set to adversely impact non-ecommerce Internet and mobile platforms, the Internet and Mobile Association of India has said. Issues raised by the IAMAI:

1. Ambiguity over terms which apply to aggregators: According to IAMAI, the Bill defines ‘aggregators’ and ‘electronic commerce operators’ (or ‘operators’) as two separate categories, with tax liabilities defined for the ‘operators’, possibly leading towards uncertainty about whether the ‘aggregators’ too are subject to the same liabilities.
2. Only listing of sellers are aggregators? The definition of ‘aggregator’ suggests it applies only for services and that too only for ‘listing’ of sellers. However, under this definition, online classifieds like Naukri will not qualify as ‘aggregator’ as these businesses do not list ‘persons providing service ‘X’ under the brand name or trade name of the said aggregator’. For example the jobs listed on Naukri are actually offered by other companies in their name.
3. Only applicable to listing of services: Online classifieds such as Olx and Quikr provide listing services for ‘goods’. However, the GST definition fails to recognize such listing service providers as it only defines ‘Aggregators’ for services.
4. Some entities don’t just list services: Online travel agencies like MakeMyTrip and Yatra “do not list ‘persons providing service of a particular kind under the brand name or trade name of the said aggregator.’” They facilitate payments and supply of services, which could mean that they’re treated as operators and not aggregators. In the same way, Ola and Uber enable payments, even though they are aggregators.

“These discrepancies” the IAMAI says, may lead to misinterpretation of the tax provisions by both regulators and the internet services companies, leading to unnecessary compliance related conflicts in the coming days.”

Apart from the issues of nuances of how online marketplaces function, there is the question of safe harbor. The IAMAI also points out that the GST treats intermediaries as ‘agents’ who ‘carry on the business of supply or receipt of goods and/or services on behalf of another’ and clubs these entities together with Commission agents, brokers, etc.

This means that if a video is published by someone on YouTube, Facebook or Twitter, these entities will be treated as agents of the user and be held liable for the content. This goes against the safe harbor principle, which treats platforms as mere intermediaries, and seeks to hold the person uploading the content as liable, instead of the platform. This treatment of platforms as agents is irrational because billions of pieces of content are being uploaded online, and it is impossible for the website or app to keep track of the content. In turn, the provision also ends up holding ISPs liable for the data being transferred on its pipe, and hosting service providers will be liable for the content or service being hosted on it.

According to the IAMAI: “This would effectively stop free and easy hosting services that the platform offers. Similar restrictions would be applicable for other services like social networking sites, online marketplaces, etc. In short, doing business in India just got complicated for Internet Service providers.”

Well, not complicated. It becomes impossible. If YouTube or Rediff were held liable for comments on their websites alone, they wouldn’t exist. This would, as the IAMAI also points out, be in violation of Section 79 of the IT Act, which ensures that a platform, an ISP or any intermediary is not liable for content that is merely being transferred or communicated by one user (or a merchant) to another user (a customer/consumer). For this, the platform should not have initiated the content/service being transmitted, selected the receiver or modified the the information in the transmission.

Details of the Section 79 (source: CIS India)


(1) Notwithstanding anything contained in any law for the time being in force but subject to the provisions of sub-sections (2) and (3), an intermediary shall not be liable for any third party information, data, or communication link made available or hosted by him.

(2) The provisions of sub-section (1) shall apply if—

(a) the function of the intermediary is limited to providing access to a communication system over which information made available by third parties is transmitted or temporarily stored or hasted; or

(b) the intermediary does not—

(i) initiate the transmission,

(ii) select the receiver of the transmission, and

(iii) select or modify the information contained in the transmission;

(c) the intermediary observes due diligence while discharging his duties under this Act and also observes such other guidelines as the Central Government may prescribe in this behalf.

(3) The provisions of sub-section (1) shall not apply if—

(a) the intermediary has conspired or abetted or aided or induced, whether by threats or promise or authorise in the commission of the unlawful act;

(b) upon receiving actual knowledge, or on being notified by the appropriate Government or its agency that any information, data or communication link residing in or connected to a computer resource controlled by the intermediary is being used to commit the unlawful act, the intermediary fails to expeditiously remove or disable access to that material on that resource without vitiating the evidence in any manner.

Explanation —For the purposes of this section, the expression “third party information” means any information dealt with by an intermediary in his capacity as an intermediary.

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